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Why Businesses Can’t Stand Free Markets (businessweek.com)
125 points by petethomas on Dec 23, 2010 | hide | past | web | favorite | 134 comments

I think the lesson to learn here is that there is no such thing as a "free market" - all markets are constrained to some degree by the regulations that shape them. Markets are human creations just like languages, and the rules around them are designed either consciously or passively.

When you let special interest groups define the rules, they tend to define them in their own favor. In the modern industrial state, corporations have discovered a very successful tactic of evading conscious interference by proclaiming their desire for "free markets" and then lobbying behind the scenes to tilt markets in their favor.

When people wake up to this reality and smart businesspeople like those on HN stop pretending that a "free market" is some god-given natural state of affairs, then we will be able to level the playing field for small businesses against the corporate interests. Smart regulations are important to avoid abuse of power.

>"I think the lesson to learn here is that there is no such thing as a 'free market'"

That's a popular piece of rhetoric, but I don't buy it. Certainly a market with government handouts or regulations that bias the interests of some players over others is less free than a market without such interference. I think we can say that the transportation market was "more free" after competition killing regulation was removed from the trucking industry under the Carter administration, for example[1]. (People forget about Carter's libertarian streak, but libertarians don't. You can also thank Carter for deregulation of air travel[2] and delicious microbrewed beer[3].)

Rather than lobbying to bias the market in favor of our preferred people, as you suggest we do, it is perfectly possible to lobby in favor of less special-interest rules. In fact there is a significant minority of people in this country who do just that. We call ourselves "libertarians".




"That's a popular piece of rhetoric, but I don't buy it. Certainly a market with government handouts or regulations that bias the interests of some players over others is less free than a market without such interference."

Really? What about a market in which a private entity behaves similarly or worse? The British East India company, for example, literally owned a country. With only the actions of a "private" entity, India's market were open primarily to ... British goods. http://en.wikipedia.org/wiki/Company_rule_in_India ("During the period, 1780–1860, India changed from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods." )

What I've said to the libertarians here is "when everything is private, I will invest in the tanks, I think they'll be a profit center..."

Yea that's been working out really well. /sarcasm

I would argue that the present market is certainly not free, but that does not make a free (that is, unregulated) market impossible.


The problem is it also doesn't make a free market *well-defined".

If in a discussion "free market" has a willo-the-wisp quality in which whatever existences and is undesirable "isn't really a free market", then you haven't shown that "free market" is anything but rhetorical device.

Or desirable.

I think the lesson to learn here is that free markets require maintenance and defending. A free market is by its very definition the natural state of affairs. In not only the modern industrial state, but every state America has known, we have added regulation upon regulation to the system to the point that the only way to be an entrepreneur is to create a completely new industry because it hasn't been regulated yet. When's the last time you heard of a banking or a farming startup? (And if you mention BankSimple, can't you hear them practically begging for mercy from their regulations in the blog posts they publish?)

We need to wake up and free the market. A lack of regulations (as has been proven) is the only way to avoid abuse of power.

Every time this topic comes up, I wonder why lobbying is legal. Can anyone give me a good explanation? The only one I've really heard is "lobbying is free speech, corporations need free speech".

Lobbying is just a fancy word for talking to Congresspeople. Thanks to human psychology, it doesn't even have to look like the mental image many people have of the lobbyist walking in with a suitcase of cash for some major cash transfer in the law. All you have to do is spend time with the Congressperson until their hindbrain decides you are "one of theirs", and then even if they don't consciously steer things your way they will subconsciously steer them your way.

How do you outlaw that? What are you going to do, cloister your Congressperson in their office and forbid them from seeing people? It's actually a big part of their job. Are you going to say that if a Congressperson is considering a certain regulation of a certain industry, under no circumstances should they ever talk to anyone with any connection to that industry? As stupid as law may sometimes be today, that would actually be even stupider.

Yeah, sometimes it does devolve into the suitcase scenario but really that's quite unsubtle.

I think the fundamental problem is that running for national office in the US is extremely expensive¹, so anyone who wants the job and is not independently wealthy has to spend a lot of time fund-raising. Even if the fund-raising does not involve outright corruption, it requires an aspiring Congressperson to spend a lot of time hanging out with people who can afford to make large donations.

The best solution I can think of is public financing of elections, but I am very pessimistic about such a law getting through Congress, even if the Democrats retake the House in 2012.

¹According to figures gathered by the Campaign Finance Institute, it costs about $1.3M to win a House seat and about $7.5M to win a Senate seat. (http://www.cfinst.org/data/HistoricalStats.aspx)

Why the assumption that Democrats are inherently more interested in campaign finance reform? Obama ran the most expensive campaign in history and took plenty of special interest money.

Seriously, nothing will happen if not even the comparably bright people on this site is able to digest the fact that politics in the US is more complicated (and, indeed more broken) than "democrat good, republican bad". They're pretty much all scum, and the few honest people seem to be pretty well distributed across the parties.

People assume that democrats are more interested in campaign finance reform because most serious attempts to reform campaign finance laws have been spearheaded by Democrats and opposed by establishment Republicans. Every senator who voted against McCain-Feingold was a Republican, and many prominent Republicans and conservative organizations (Mitch McConnell, Newt Gingrich, Heritage Foundation, Cato Institute) approved of the Citizens United decision.

Every politician does whatever they can within the rules (and then some) to get elected, but some want to change the rules because, for example, banning corporate donations would probably hurt Republicans more than Democrats.

Well, McCain sponsored and Bush signed McCain-Feingold. Second, Citizens United isn't about campaign finance per se. Since the people spending money under CU can't even talk to the campaign they support, this category of spending is at least a layer removed from the candidate, and quid-pro-quo becomes more difficult.

But finally, and my most important point: No, Republicans, to the extend they have a common position doesn't want campaign finance reform. But neither does the democrats (to the extend they have a common position). Most significantly, a very prominent Democrat broke his pledge to take public financing in the face of raising heaps of money and outspend his opponent 2:1.

I mean, perfectly honest, Democratic congress or not, is Obama going to get behind serious campaign finance reform?

Because Republicans loudly proclaim the equivalency of money and speech, and always come out against attempts to regulate spending in elections?

Seriously, it's part of their platform.

Does anyone else see the irony of public campaign financing as a solution to problems explained in the this article?

In the same way that companies distort regulations of their industry to thwart competition, politicians will ensure that public campaign financing rules will prevent newcomers (e.g. tea party, green party, etc) from ever getting elected.

>How do you outlaw that?

You don't. We change the societal web of incentives such that the people who become legislators are capable of making the distinction between unethical lobbying and their role as representatives on their own.

The people we're getting right now sometimes seem cognitively unable to draw this distinction at all.

EDIT: And how do we do that, I hear you cry? We'll what we're doing right now is a good start. Capitalists, entrepreneurs and some might say downright greedy people having loud, public conversations questioning and debating the role of private business in government, and vice-versa. If this keeps happening, the meme that perhaps such unrestrained lobbying might be harmful will permeate mainstream culture, and when the politicians of the future are preparing their campaign platforms, personal ethical responsibility in their relationship to industry will be at the top of their minds, because they perceive them to be at the top of the minds of those who will be voting for them. Obviously it is too ambitious to expect politicians to act selflessly. Therefore we must make it in their interests to act ethically.

And run-on-sentences. Those help too.

It's not just an old adage that power corrupts.

So let's make ethical exercising of power a route to greater power. Hello feedback loop.

It would be great if that worked, but it's not like this is the first time corruption in government has been an issue and it's not the first time people have tried to get rid of it either. It comes back as soon as the public stops watching closely.

Indeed. The only way to make sure that politics are not corrupt is to make sure that we never elect a person of dubious morals or intellect. Right now, that's basically all we ever elect. If there's a person in power interested in misappropriating or exploiting that power for self-interest over the general interest, he will probably find a way to do so eventually.

This is why it's relevant when a politician has had an affair; if he is unwilling to uphold the most solemn covenants he makes in his lifetime, to the people to whom is the closest, and upon whom the negative impact of his actions will hit the hardest, why do we have any idea that he will be willing to uphold his covenant to perform in the general interest or uphold the Constitution when his covenant is with an amorphous, anonymous mass of "The People"?

>It would be great if that worked

DHH told me to attempt the impossible if I want to achieve success. I see it as profoundly unimaginative and unambitious to restrict this notion to the fields of business and programming.

You've gotta have a go!

Besides, 'watching closely' is pretty trivial now. The government certainly seems pretty good at doing it to us.

Sorry to be so pessimistic, but I would say your position is more like trying things that have historically failed many times, but thinking it might work this time. I'm trying to think of a parallel in startups, but I'm drawing a blank.


Space travel.

Take a business that was hot five years ago and make the exact same thing.

Powered flight.

I always picture sacks with '$' on the side rather than suitcases, but I always have difficulty shaking the feeling that lobbying is basically a cash transaction. I constantly have to talk myself out of this. The following is a great, brief string of reasoning that helps: http://volokh.com/2010/01/24/money-and-speech-2

> How do you outlaw that?

You don't. In short, you de-incentivize lobbying by drastically reducing the size, scope, and budget of the federal government as mandated in the Constitution.

Which article of the constitution talks about the size of the federal budget?

The Constitution sets limits on the scope of federal powers. It also originally banned income taxes. The only money mentioned in the Constitution is gold or silver. All of these restrict the size of the government and its budget.

Art. I, Sec. 8, cl. 5 explicitly grants Congress the power to coin money. It restricts the individual states to only using gold and silver as legal tender.

Income taxes were never "banned". Before Pollock v. Farmers' Loan & Trust in 1895, federal income taxes were considered an "indirect" tax constitutionally, and thus only had to meet the requirements of Art. I, Sec. 8, cl. 1, which was that taxes must be uniform geographically. Pollock declared federal income taxes a "direct" tax, which thus had to meet further requirements under Art. I, Sec. 2, cl. 3, which called for the receipts of direct taxes to be apportioned proportionally to the population of each individual state.

The Sixteenth Amendment (ratified 18 years after Pollock) lifted the requirement of proportional distribution; it did not change the constitutionality (or unconstitutionality) of federal income taxes.

Strict single term limits for all members of Congress would go a long way toward making this natural tendency manageable - if it's a natural cycle (and I think it is), then it makes sense to re-start that cycle as often as possible.

I don't know if this is actually true, but I have heard that the short term limits in California's congress is a big part of why special interest groups have such outsized power in this state. The method of action is supposedly that inexperienced congresspeople do not know how to navigate the processes in Sacramento, and the lobbies come along to help them out.

Like I said, I don't know if it's true, but I don't really see a mechanism by which single term limits will help the situation. In fact, they may make it even worse by making it hard for politicians to distinguish themselves by a record of actually doing good. Instead, the public will have absolutely nothing to go on besides advertisements, which are paid for by guess who.

For the record, I have heard this said from both sides of the aisle. I'm not standing by its truthfulness because government brokenness is a complex issue, but it certainly seems like a valid explanation to me.

I agree with you.

When newbies get elected, they have a tough time navigating the corridors of power. This is where the lobbyists come in: they've seen the system (they probably were a part of it before becoming lobbyists), they know how it works, and they're just too happy to help out. This way their influence grows stronger year by year.

Term limits is not the answer. I think California's open primaries will help in electing moderates, people who are willing to look at all sides of the equation.

I keep getting stuck on this point as well. One possible idea I keep coming back to: What about limiting campaign contributions to $1 per person/entity? I am guessing there would be quite a bit of backlash against this idea (Besides pols and lobbyists themselves, doesn't media get a lot of advertising dollars from campaigns?) but maybe if we can devalue the process significantly, it won't be quite so one-sided/game-able?

Wouldn't that just effectively hand lobbying power to the huge corporations? How would that change anything?

Sorry, I didn't check back to see that anyone had posted...

Just in case you see this, my idea was to limit ALL contributions to $1 per entity - person, corporation, whatever.

Hmmm... So if a corporation had/forced all employees to offer up their dollar to a specific candidate, looks like you are right - It could/would still be gamed... sigh.

I do not think the problem is them talking. I think the problem is them giving money indirectly through campaign contributions.

One statistic the article states is that some organisation spent about 700,000 dollars in lobbying and 2.5 millions in campaign contributions. I only wonder which was more effective.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Imagine you are a legislator in the US. You are one of 535 people who pass the laws that effect every industry and group of the country. How arrogant would it be to assume that you can make good decisions about a certain industry or group, without actually talking to representatives from that group?

Now imagine you're a key figure in an industry, such as, say, the internet industry, and you have opinions about things, such as, say, net neutrality. How foolish would it be for you not to attempt to influence the decision makers by providing them with your view of the issue?

This is what lobbying is. It has nothing to do with free speech, and everything to do with information flow. You certainly would never outlaw it.

Except the problem is the only people whose voices are heard in this are the rich. Telecoms can afford to do this, while the people on the other side of it don't have the time or means to.

That is not true. In years past, money helped a lot, but letters and phone calls have always had some level of effectiveness. Dollar for dollar, a letter signed by a constituent is more effective than an expensive lobbiest (it helps that the cost of letters are disproportionately low - unfortunately, it takes a lot of letters to be effective).

There are a lot of "grass roots" lobbying going on for nearly free based on emails, web pages, and social media. In fact, it is so effective that many lobbiests have adopted "grass roots" mechanisms to lobby - see "astroturfing" http://en.wikipedia.org/wiki/Astroturfing.

A corporation is a group of people. A group will tend to be richer than a single person.

And a letter from that group is probably more representative of the collective opinion of the people working there than (say) a Senator's votes are representative of their state.

I've never worked for any corporation whose corporate opinion had any relation to my own. If employees can be required to distance themselves from their employers when stating an opinion on their blogs, employers should be required to state that the opinion of the corporation does not necessarily represent the collective opinions of its employees.

It doesn't work this way. The corporation could get sued if an employee (representing the corporation) says the wrong thing. The converse won't happen.

What the fuck?

A corporation is made up of SHAREHOLDERS, not employees.

Yes, I was one of those, too. And yet, people use employees in arguments for corporate free speech (as did the post to which I originally replied ("people working there")).

Suppose Congress is going to pass a law. They don't realize it, but it will devastate your industry by changing the rules midgame. Think about what Ubercab ("illegal cab") or AirBnb ("illegal hotel") recently went through.

Now, imagine that you can't sound the alarm. This is going to put people out of work and ruin your business, but you can't say anything.

That's what it means to prohibit lobbying.

To stop lobbying, you need to stop Congressmen from getting power-drunk and passing random rules and regulations that affect the economy based on something they just read in the New York Times (like the recent debit/credit thing). Companies generally don't want to lobby, they just do it as a defensive measure.

The problem is not lobbying. A lobbyist should be free to ask a member of Congress if their organization can have a tax break. The problem is the Congressman who grants the tax break. We need to stop thinking of our representatives as innocent victims of lobbyist culture.

This is an interesting chicken-and-egg question we had not so long before - is it legislature or is it business that produces corruption? The answer is not black and white and depends on jurisdiction.

I think it's incredibly black & white. It must be the legislators. They are the ones with power to pass laws. Even if businesses "encourage" (not "produce") corruption, the law makers must have some control over their own actions, right? Why don't defense contracts lobby Dennis Kucinich? Why doesn't Monsanto lobby Ron Paul? If there were 535 legislators who respected the constitution, there wouldn't be a lobbying industry.

The corporations control both fiscal (tax revenue) and political (jobs) levers of the legislature. The politicians in the US (or most democratic countries for that matter) cannot simply say no to the money from large multinationals. Especially in the US where any interference with the business e.g. nationalisation is considered communist taboo topic.

You're missing the core point. The politician doesn't need to say no to corporate money. He can, and should, say yes to all the money that any person or business wants to donate. The problem is when the politician writes into law a regulation, tariff, or rule that benefits a specific donor.

I fundraise for my kid's school. A local bank, ABC Savings, makes a considerable donation. There's no expectation that the school will pass a rule where we only accept students if their parents bank at ABC Savings. There's a difference between accepting campaign fundraising and quid pro quo.

I don't see how (s)he can be saying yes to all the money coming in and NOT be favoring one over another. It's not like everyone is giving equal amounts of money?

In your own example - it's not like school will not accept somebody if they're not using ABC Savings. But they sure as hell will cater more to those who do, than to those who don't?

The problem is not lobbying, that's a symptom. The problem is deep and multi-fold. On the one hand you have a very broken and ineffectual news media which focuses on trivialities and scandal and otherwise ignores all else. A media which has perverted the process of gaining elected office by making it unpalateable for most folks, leaving it only to career politicians and glory hounds. On the other hand you have a bloated and excessively powerful government. The increase in tax revenues, laws, and regulations in the last several generations has concentrated a great deal of power and control of money in DC and in state capitols. This excessive power invites corruption, when every business depends on the activity of congress then every business will do its best to influence congress.

The only long term solution to the problem is to improve journalism (which is happening slowly) to encourage a better class of office seekers combined with a reduction in the importance of government in business and daily lives, to make it less worthwhile and less necessary for businesses to influence government.

Lobbying is a symptom of the problem that the federal government has way too much money to hand out to various states, corporations, industries, government programs, etc. The federal government as described in the Constitution should be orders of magnitude smaller than it is now, and should have orders of magnitude fewer funds to disperse.

Lobbying itself shouldn't be illegal, it should just be de-incentivized by controlling the federal government's size and scope per the Constitution. This would also fix a lot of the corruption among federal representatives, who all too often are judged for the amount of booty they can bring back to their states.

> I've really heard is "lobbying is free speech, corporations need free speech".

Is it bad if I write a letter or talk with my congress critter? How about if I put up a sign?

How about if you and I get together to do so?

Corporations are voluntary aggregations of people.

Actually, a corporation is an entity empowered by law to do certain things (e.g., shield its owners from personal liability) that a mere aggregation of people cannot do. The Supreme Court majority in the Citizens United case missed this important distinction.

I think it’s possible to draw logical and constitutional lines between

¶ 100 people writing letters to their Congresscritters advocating for the same policy

¶ a manager of a corporation (with 100 shareholders) writing Congresscritters to advocate for some policy (that not all 100 shareholders think is a good idea)

¶ a corporation hiring a lobbyist to be its permanent advocate in Washington

> a manager of a corporation (with 100 shareholders) writing Congresscritters to advocate for some policy (that not all 100 shareholders think is a good idea)

Actually, those shareholders do think that it's a good idea because they've continued to be shareholders.

> corporation hiring a lobbyist to be its permanent advocate in Washington

That's just like me than me writing a letter every day.

Who would outlaw lobbying? The politicians who benefit from it?

I realize it's unlikely to happen of course. I just wanted to know the actual arguments justifying it. Even the most corrupt politician wouldn't come out and say "I'm pro-lobbying because my good buddy Megacorp says I should be, and he's paid me an awful lot to believe that."

Because it would be impossible to make illegal effectively - that would just drive it further underground and make it even more invisible.

Corporations have rights to free speech only if they are people under the law. Currently, they are, but I think there are major problems with that. It takes responsibility from those making decisions and puts it on some general body.

Corporations don't make decisions, though. People make decisions. We act as individuals. France doesn't attack Britain. Soldiers in one army attack soldiers in another army. We act as individuals. http://en.wikipedia.org/wiki/Methodological_individualism

I don't agree with everything it said, but The Corporation makes some good points about how corporations as legal entities allow people to abdicate responsibility. Watch it on Youtube here: http://bit.ly/hb0wuL.

Hmmm. How is that substantively different from the process of electing a representative via democracy?

Many of the same dangers are present in democracy, especially as it degenerates into mob rule. Unless individuals bear responsibility for their own actions, we can be pretty barbaric. Witness the war brutalities committed in Vietnam or WWII when soldiers thought they could absolve themselves of responsibility by blaming the chain of command. Also, see the later chapters of Hayek's Road to Serfdom.

Ron Paul makes a very valid point about differentiating between capitalism, and what is described here, which he calls corporatism (somewhat at odds with the definition for this term offered in Wikipedia).

The real question is, does capitalism just inevitably end up in coporatism?

Antitrust law provides some interesting insight into the question IMO. It was established because laissez faire economics failed to prevent monopolies. Instead, a carefully crafted regulation supported capitalism.

I think true capitalism can't arise in a vacuum; it needs a regulatory support structure for enforcement.

It's well agreed that at least property rights and strong rule of law are prerequisites for capitalism. Most anarcho-capitalist discussions I've heard seems to evolve around how exactly those two properties would come to exist in a state-less society.

Yes but that rule of law wouldn't have any anti-trust laws in it, right? So I'm not sure how this is an answer to the claim that capitalism creates monopolies so anti-trust laws are needed. As an anarcho-capitalist, I think we need to convince people that capitalism doesn't cause problematic monopolies, Governments cause those.

"Antitrust law provides some interesting insight into the question IMO. It was established because laissez faire economics failed to prevent monopolies."

This is obviously false, both from a logical and historical view.

A monopoly cannot exist in a free market as no company, no matter how successful, can actually restrict entry into any given market without the government banning entry into that market. This is accomplished though various legal means including licenses, trade barriers, so-called "intellectual property" protections, and other tactics. Without the barriers for entry into any market provided by government, establishment of a monopoly on any desired service would be impossible.

Now, you might cite some historical examples like Standard Oil and the like as examples of why monopoly protections are needed, but this standard example only illustrates my case. The price of a gallon of oil, for example, was around 30 cents in 1870 and fell to around 6 cents at the time of the anti-trust trial. And their market share was continuously dropping despite their supposed monopoly.

So I take it you don't believe in natural monopolies?

I'm not going to speak for him, but I sense that he does "believe" in natural monopolies. He also probably feels like there's nothing /wrong/ with natural monopolies, and I'd have to agree.

A natural monopoly can and ought to be defined as an entity with monopolistic market share achieved WITHOUT government regulation, subsidies, and the like, AND WITHOUT the illegal use of physical violence.

In a free market, productivity tends to rise and prices tend to fall. Market leaders, in order to maintain their leadership, must constantly work to stay ahead of their competition.

This is a good rule of thumb to determine whether a market is free. So, for example, in the US, the high tech hardware and software markets are free (prices are continuously dropping) while the higher education market is not (prices go up every year.)

Why use Standard Oil and not say Google or even Facebook? Google has a massive share of search. Not because of any barriers to entry, but, because, well, they, had a great idea and it worked.

It is unlikely that google would loose such position until there is an advance or breakthrough. Until then, google can do quite a lot and pretty much whatever it likes if there were no laws constraining it.

Not sure why you were down voted on that. You're correct in my view that laissez faire economics doesn't promote monopolies. There are other reasons laissez faire economics is a poor economic model, such as safety.

I would argue that safety regulations are not at odds with the laissez-faire model. Laissez-faire is not the same as anarchy; injuring another person -- including through faulty products or workplace hazards -- should still be punishable.

Also, on the subject of safety in the free market, think Underwriters Laboratory and Consumer Reports. People don't want coffee makers that burst into flames or cars that roll over.

Underwriters Laboratory and Consumer Reports seem like special cases. Don't most private quality control organizations go the way of Yelp, the BBB, the BSA, etc- questionable ratings and bad economic incentives?

I'll go ahead and add Standard and Poor's, Moody's, the SEC, and the FDA to your list of bad examples, since poor quality and bad incentives can arise with either voluntary or coerced funding. But at least with voluntary funding you can take your business elsewhere, or even compete.

Punishable by what? The slow dissemination of information resulting in markets driving down the viability of a company that produced a faulty product? How many injuries are necessary before that information hits a critical mass?

Let's take one specific example, though the principle can be applied to most industries: child car seats. Presently, govt regulations require very specific quality and manufacturing standards and thorough testing before a child safety seat can be sold on the market. Without those regulations in place, how man children need to die before third party organizations can disseminate product failure information wide enough that the responsible company suffers the consequences?

I think true capitalism can't arise in a vacuum; it needs a regulatory support structure for enforcement.

cf. The Value of Nothing by Raj Patel in which he makes the point that we all agree as a society how trade is conducted, and we can agree to do it one way or another way. For example we now agree humans can't be sold and that land can, but at other times the reverse was the case.

Trade does not happen in a social vacuum.

You're rewriting history. Take the railroads. Railroads that were working with the government made transcontinental tracks first. The first private one came after. Laissez faire economics didn't get there first and create a bunch of monopolies, they came by and large from corrupt politicians being bribed to pass laws to support them.

(Politicians were really corrupt back then. For example they would commonly threaten to pass nasty laws to mess up railroads just to get bribed to stop. It's amazing how bad it was, and how far we've come that today's politicians aren't so corrupt like that (partly the change is due to technology making it harder to hide what you do)).

And I heard economists saying anti-trust laws are a joke that usually hurt smaller business over large.

Who watch the watcher? How those watcher of watchers determine if the watcher in question is doing its job?

If that is indeed the question, it should be if capitalism and democracy doesn't naturally end up in corporatism.

There's an unfair amount of blame on the corporate end of this conflict, when the fact is that nothing of this could happen without willing politicians.

No, human nature inevitably leads to corporatism. Let me give my definition of capitalism and corporatism to start my argument.

Capitalism: People are free to buy and sell their own property as they see fit. This necessarily implies people have enforced property rights. In other words people with economic freedom are practicing capitalism.

Corporatism: Groups of people organize (into corporations) in order to advance their interests (usually to make a profit). One way to advance their interests is to push for laws and regulations that favor themselves at the expense of others.

So in the United States we have a constitution designed to protect freedom from people who are trying to favor their own interests. Now we're all involved in both sides to some degree or another. I want freedom to do whatever I want. I also want restrictions on your freedom to do whatever you want to do to me. Where do we end up? Well we never end up anywhere, we just keep changing what the limits of our freedoms are. Human nature being what it is, given the opportunity we push for personal benefits at the expense of others freedoms - Corporatism.

I'm not sure you can make that distinction. Capitalism is using capital to get economic power. The kind of practices described here are exactly that.

No, the article describes the practice of acquiring political power, not economic power.

Well, the distinction is essentially meaningless in a 'free market' society. There are some politicians who are in it to help others but many succumb to the economic motivations present in our current political system. Powerful lawmakers can parley their political power into economic gain and given the number of rich people in Congress and the amount of lobbying money spent it appears the reverse is true as well.

Well, the distinction is essentially meaningless in a 'free market' society.

Political power and economic "power" aren't the same sort of thing: one is ultimately based on force, and the other on willing trade. A market is only free to the extent that political power allows, and the only entirely free market would be in the absence of political power.

There is never an absence of political power. Presently it is the state of humans that whenever a sufficiently large number of them congregate a power dynamic takes hold. Those who control the resources have the power. Calling this economic power or political power is meaningless. It is power and it is wielded.

The goal ought to be to diffuse this power amongst as many people as possible. Concentrated power is the thing to fear.

What exactly do you mean by "force"?

Libertarians of various stripes derive a lot of their concept of ethics from the non-agression principle. Of course, then left and right libertarians argue over even the details of something this simple, for example, left libertarians consider private property to be forceful in nature. [2]

1: http://en.wikipedia.org/wiki/Non-aggression_principle 2: http://en.wikipedia.org/wiki/Non-aggression_principle#Ambigu...

In a free market society, there would be no such thing as a powerful lawmaker. By saying that many politicians are incapable of resisting corruption, you are making an argument for severely limiting the power of the government.

No, I am making no such argument. What needs to change, in my opinion, is our culture. Many politicians in our current political system with our current culture are incapable of resisting corruption. Severely limiting the power of government would just let corporations run roughshod over us even more than they do now.

>Severely limiting the power of government would just let corporations run roughshod over us even more than they do now.

I disagree, and offer this article as a source of several examples. The corporations currently have far more influence over the actions of the government than the general public, which means that corporations are able to exercise a lot of effective power over the general public. By removing some government power, you lessen the effective power of corporations. If the government is stripped of its power to do things like shutting down small coffin makers or imposing high tariffs on specific markets, corporations lose their ability to influence the government into doing those things.

I defy you to show me any examples other than Microsoft of a corporation gaining so much economic power that, without employing the government, it was able to exercise more power than the government currently enables it to.

This is all true, but you are merely describing different symptoms of a common illness.

The illness is that some people choose to initiate force against others. Every single human being should refrain from such behavior. All interactions among individuals should be by mutual consent, or not at all.

Unfortunately that simple moral principle has deep implications which most people are not willing to accept. And so the nightmare continues.

But their goal is still economic. They aren't getting unlicensed coffin sellers banned because they think that's what the people need, they're doing it to protect their profit margin.

Right, and the only way to ban those coffin sellers is by force. Someone has to be willing to go in there with a gun and make them stop. The ability to get that done is called "political power".

Of course, normally it doesn't come to that, but the threat has to be real otherwise those naughty people will just go right on selling coffins. (My goodness, they might even be unsafe.)

Yes, people often seek political power in order to maximize their economic power. And people with economic power can often gain political power. Nevertheless, the two types of power are distinct. Political power is the ability and willingness to initiate force against others. Economic power is the ability to deploy capital in production. Just because one can be used to pursue the other does not make them equivalent.

I could find neither his name, nor an explanation of the distinction that you mention he makes, in this article. What is his argument?

I know what the difference is between Corporatism and Capitalism, but I would be intrigued to see Ron Paul's explanation of the distinction and relationship, and, in particular, how his specific policies would prevent corporatism.

Ah, okay. I haven't heard anything too specific other than him saying "Corporate Capitalism sucks, and we shouldn't do it."

I just tried poking around on The Google, and http://www.ronpaul.com/tag/corporatism/ is apparently 500ing right now.

Socialism is a system where the government directly owns and manages businesses. Corporatism is a system where businesses are nominally in private hands, but are in fact controlled by the government. In a corporatist state, government officials often act in collusion with their favored business interests to design polices that give those interests a monopoly position, to the detriment of both competitors and consumers.

Source: http://www.campaignforliberty.com/article.php?view=806

That's incorrect. Karl Marx often used Kommunismus and Sozialismus interchangeably. Neither mean that "the government directly owns and manages business."



Absent the political temptation (using the state to "regulate away" the competition), businesses have no choice but to appeal to their consumers with better services.

You mean they can't do things like slander competitors, disrupt supply chains through strategic purchases, strong arm vendors, and a whole host of other non-product based tactics that do nothing to show out the best product based choice?

edit: And I mean that's not getting into any of the ones that are currently illegal due to regulation. Ever heard of trusts?

> Ever heard of trusts?

Yes, my grandparents had one.

Oh, you were refering to the subject of "anti-trust".

Name three bad monopolies that didn't depend on govt power for their monopoly status.

What does "depend on gov't power" have to do with it? If you monopoly is raking in billions and the cost of a congressional race is millions, then of course you're gonna get the government on your side a bunch of the time.

The question is, is this a problem with "government" or a problem with "bribery".

> What does "depend on gov't power" have to do with it?

It depends. Do you think that we should treat orphans who kill their parents different from other orphans?

Illegal organisations quite literally fight for territorial monopolies. The problem lies with the desire of companies to maximise profits; governments' willingness to facilitate it on occasion is a symptom rather than the cause.

Microsoft in the 90s

Standard Oil

> Microsoft in the 90s

How long did the "monopoly" last? Were consumers injured by it?

> Standard Oil

Standard Oil was huge because they were cheaper than the competition. Kind of like how Wal-Mart did it. Is that a bad thing?

It's surprisingly hard to find an example of the textbook monopoly where prices actually rise. Diamonds, maybe?

The funny thing is that the high prices did drive competition -- modern synthetic diamonds are virtually identical to the naked eye and are just as good (if not better) for industrial machinery.

But thanks to some really good marketing, people continue to pay a premium for the "real" thing.

It's not just a question of prices rising. Failure of prices to drop to the level they would otherwise in a competitive environment is also damaging. AT&T is one example of such a situation. After the breakup of AT&T, long-distances prices dropped dramatically, and quality improved just as dramatically.

And I'm not sure how far your definition of "textbook monopoly" stretches, but the concept of "antitrust" covers not just monopolies, but cartels and cartel-like activity (like secret price-fixing agreements). OPEC is an example of cartel that has been successful in keeping prices artificially high for probably a majority of its existence.

> AT&T is one example of such a situation. After the breakup of AT&T, long-distances prices dropped dramatically

Long distance prices dropped when the long distance monopoly ended, not when AT&T was broken up.

That monopoly was a creature of law.

Clearly enough laws will solve the problem. Clearly.

Depends on the laws and regulations. A lot of things don't operate in black and white good and bad.

If the only choices you can come up with are to make better services or to eliminate competition through regulation, you aren't being very creative. Corporations can, and do, eliminate competition with buyouts, with deliberate incompatibility, with exclusivity contracts, with spies and sabotage, and with a wide variety other creative, subtle, and sometimes unethical strategies.

More often than not, the regulatory agencies become captured by the very businesses they are regulating.

I've been seeing similar comments to this around recently and I've been trying to identify the argument behind it. My best effort is something like:

1) Businesses will act in their economic self-interest to capture regulations/regulators. This is done to leverage the power of the state for themselves.

2) This capture is a bad thing, presumably due to net harm it causes to other business/customers/individuals/freedom.

3) Absent regulation businesses will not be able to (or be less able to) bend the power of the state to their own economic interests and will have to use other tactics.

4) Those other tactics are less harmful (or more beneficial?) than the effects of regulatory capture, to the degree that they overwhelm any good lost from removing regulations.

Does that roughly capture it? If so, is there evidence to support point four somewhere?

As some of your repliers have pointed out, that's a bit simplistic. Part of the reason I call myself a "little-l libertarian" is that I don't think you can necessarily deregulate in the sense of just removing regulations; I think you need carefully constructed regulations to make sure we have a free market where competition on quality is the only remaining good option for businesses, and that takes work.

But it takes a good understanding of the way the market works and the way economics work, and certainly if you just slather regulation all over the system willy-nilly the most likely outcome is regulatory capture. This is what usually happens. Neither the right nor the left is very good at this sort of regulation at all.

There aren't only the two possibilities. Cartels come to mind. In a cartel situation appealing to consumers with better services is not a necessity.

Dealing with this problem is the central problem for 'Fix Congress First'(http://www.fixcongressfirst.org/), the anti-corruption organization started by Larry Lessig.

It's focused on the pernicious effect of the revolving door between K St. lobbyists and Congressional staffs, and the way private election finance keeps these toxic exchanges alive and dangerous.

Nice article. Differentiates between an Entrepreneur and a BigCo. The bigger picture is

    Chinese capitalism  = American capitalism - Human rights
    Indian capitalism   = American capitalism + Wage slavery
Hence American capitalism is not scalable in globalized economy/free markets.

This all comes down to psychology.

Society will be shaped in whatever way the powerful wish it to be shaped.

Right now power comes from the ability to control the minds of the masses - to lull them into sleep and avoid their wrath.

No system is ever going to solve this issue. The issue will be solved when enough people decide that they prefer to live in a society with free markets.

Right now the public does not enforce that.

This is wrong (or at least incomplete) for the same reasons as the commonly heard "Businesses don't like Free Software". Yes, some businesses, usually the entrenched incumbents don't want free markets or free software, but the up and coming businesses that are trying to compete with those interests often need them to make any headway at all.

This was touched on lightly in the article: "They lobby lawmakers to constrain the same free markets in which they originally achieved success."

Seeing this puts most objectivist / libertarian arguments in a new light. I can certainly see how they're hot under the collar about government regulation and how it creates unfair market places. That said, I'm still far from convinced that an unregulated market is the answer.

Who are these mysterious "consumers"?

They don't seem to be attached to businesses, since they seem benefit from the things we hear that the businesses hate.

They don't even seem to be ordinary worker, since most workers also work for these same businesses.

Who can answer this for me?

The author wrote a sensible article, with a trollish headline. I refuse to bite.

This was a standard refrain of George Stigler and Milton Friedman, actually. Don't think they were trolling.

cf. "The Suicidal Impulses of the Business Community":


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